What is meant by co-insurance in an insurance context?

Co-insurance in an insurance context refers to a provision in an insurance policy that requires the policyholder to bear a specified percentage of the loss along with the insurer. This arrangement typically applies to property insurance and is intended to encourage policyholders to insure their properties at an adequate value. When a loss occurs, the insured is responsible for a portion of the claims or losses, which mitigates the insurance company’s risk and promotes more equitable insurance practices.

For instance, if a policy includes a co-insurance clause stating that the insured must cover 20% of losses, in the event of a $100,000 claim, the insured would be responsible for $20,000 while the insurer would pay $80,000. This mechanism is designed to discourage underinsurance and ensures that policyholders have a vested interest in the value and protection of their property.

The other options do not accurately describe co-insurance. The discussion around double coverage pertains to a situation where multiple policies cover the same property against the same risk, which does not reflect co-insurance. Reinvesting premium payments implies an investment aspect within the insurance product, unrelated to co-insurance's risk-sharing characteristic. Lastly, a fee for adding benefits to a policy relates to endorsements or riders